Concern is growing that patents hinder access to life-saving drugs in developing countries. While India clearly has made progress in advancing intellectual property rights, more needs to be done to align the country’s approach with international obligations and standards. In an interview with India Knowledge@Wharton, Ranjit Shahani, country president of the Novartis Group in India, spoke about the importance of safeguarding intellectual property and its impact on affordability and access to medicine. Novartis is challenging the denial of a patent for its cancer drug Glivec, as it is known in India. (In the U.S., the drug is called Gleevec.)

Shahani was president of the Organization of Pharmaceutical Producers of India (OPPI) from 2001 to 2007, is president of the Bombay Chamber of Commerce and Industry and chairman of INTERPAT in India, and was on the council of the International Federation of Pharmaceutical Manufacturers & Associations. He has lobbied for strong product patent law, data protection, liberalization of the price control mechanism, and legislation against counterfeit drugs.

An edited version of the conversation appears below:

India Knowledge@Wharton: The idea of there being a homogenous patent regime for all countries is like saying that the health care capabilities, priorities and infrastructure of the American people are on par with those of developing countries such as India. What are your views on this?

Shahani: You cannot compare a developing country to the U.S. on any score, be it patents, growth or equity. A patent is a license to operate and a basic premise for innovation to flourish. Protecting innovation is the best protection for patients, laying the foundation for the massive R&D investments made by the pharmaceutical industry that are vital to medical progress. Tiered pricing, donation programs, public-private partnerships and differential pricing are some of the more innovative ways to meet the access challenge rather than diluting patents. These programs can work, provided the government ensures that discounted drugs are not re-exported to countries that can afford to pay.

Unfortunately, borders are porous, and often drugs are repackaged and sold at a fraction of the cost. This is the prime reason why MNCs (multinational corporations) were reluctant to introduce differential pricing in the past. Donation and differential pricing programs could work if a reliable public distribution framework existed to track the movement of drugs and safeguard against parallel import to other nations. We need to devise a pricing system that will work for all socio-economic classes, as a majority of India lives on $2 a day, and those at the bottom of the pyramid cannot afford even two square meals.

India Knowledge@Wharton: In a context where firms can earn significant profits in developed countries on drugs for ailments such as cardiovascular disease, cancer and diabetes, why do multinational corporations — and also the Indian government — argue that a lack of strong patents in India would hinder innovation?

Shahani: With effective patent laws, companies continue to bring improvements and innovations to patients and societies. For a research-based company such as Novartis, patents are non-negotiable. We do not challenge provisions that provide for access under international trade agreements, specifically the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Doha Declaration. In fact, Novartis supports TRIPS conditions that promote access for developing countries. We are challenging the establishment of additional hurdles to patentability in India that discourage both breakthrough and incremental innovation. With regard to India, reimportation and parallel trade are issues. Distributors use India as a platform to export drugs at a fraction of the cost to the U.S. and developed markets.

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India Knowledge@Wharton: Using Glivec as an example, could you explain your thoughts on the generics business in India? What is the interplay between a fully functioning intellectual property rights regime and a country where most people survive on less than $2 a day?

Shahani: As the second-largest generic drugs company globally, we know the important role generics play. But here, generics alone do not solve the issue. Generic versions of Glivec are far too expensive for the poor in India. Furthermore, generic-makers in India have yet to come forward with an access program for generic imatinib mesylate [Glivec’s generic name]. For example, in India the cost of a one-year treatment with generic imatinib is $2,100, or 4.5 times the average annual income. Even our critics recognize that generic versions of Glivec are not the solution for the poor in India. This is why approximately 99% of patients on Glivec receive it free. There is no market for Glivec in India. This is about safeguarding our intellectual property in an increasingly important industrial country. It is about gaining clarity; will patents be granted in India? Will incremental — patentable — innovation be rewarded? Incremental is often regarded as being trivial, but that is not true. Incremental pharmaceutical innovations are sequential innovations with dramatically improved health outcomes. A large number of examples can be offered here in the pharmaceutical industry.

India Knowledge@Wharton: There is movement to introduce legislation in India similar to the U.S. Bayh-Dole Act, which allows universities to patent results of publicly funded research. Are big pharma companies justified in using taxpayer-funded research to make profits? Is there evidence of a problem now, that is, drugs that are developed by Indian universities or labs that are not being commercialized because of a lack of upstream patents?

Shahani: Treating a condition effectively requires collaboration among multiple stakeholders. Developing an understanding of the disease itself is often the domain of government and academia. Discovering and developing the medicine to treat the disease is almost always the domain of the pharmaceutical companies. Finally, testing new treatments in clinical trials requires collaboration among pharmaceutical companies, government, academia, health-care professionals and patients.

The process begins with lead identification in private labs and academic institutions. Most identified compounds are licensed to pharmaceutical companies that do not have the financial backing to undertake such expenses. If the results are promising, the compound is brought to human study in clinical trials, where the costs are significant. In India, research institutes often license the molecule to larger pharmaceutical companies for commercialization. The Central Drug Research Institute in Lucknow discovered the antimalarial drug Aablaquin, which it licensed to Nicholas Piramal [India’s second largest pharma health care firm] for development and commercialization.

India Knowledge@Wharton: A section of Indian patent law has introduced, among other things, a new “improved efficacy” hurdle for patentability for new forms of known compounds. Does there seem to be ambiguity around the term “substantial” and what constitutes an incremental improvement?

Shahani: The term “incremental innovation” is a misnomer. It should be termed “patentable innovation,” because it has significant health outcomes. The Indian patent law creates new hurdles for pharmaceutical innovation, unjustifiably and illegally narrowing what is patentable. The list of exclusions under challenge in our legal case includes new chemical compounds — defined as “derivatives of new compounds” — combinations, salts, esters of known compounds. [Editor’s note: Esters are a class of chemical compounds.] These exclusions, among other therapeutic areas, could impact innovation in AIDS treatments by denying patents for combination therapies. They could also impact infectious diseases where new antibiotics result from introducing new salts and esters of the known compound penicillin. That said, the judiciary is getting more and more knowledgeable, which should, in time, put this seemingly complex issue to rest.

India Knowledge@Wharton: The government recently stated that it would not invoke compulsory licensing unless the country is faced with an epidemic-like situation. Since AIDS is more of a permanent crisis than an emergency, where do you see the production and distribution of AIDS drugs over the next decade?

Shahani: There continues to be some ambiguity around what constitutes an epidemic situation. In 2007, India reported 2.5 million HIV infections, a prevalence rate of 0.36%, with less than 15% of HIV-positive people receiving [antiretroviral] treatment. That said, India has about 60 million diabetic patients [30 million diagnosed and another 30 million undiagnosed]. By sheer volume, wouldn’t that constitute an emergency? If examined carefully, limited cases would qualify as a national emergency, an epidemic, for example. HIV and cancer by the very nature of these illnesses are an emotive issue, which is why they get the volume of publicity.

India Knowledge@Wharton: Most of the patent debate is centered on affordability of drugs. How will the government and MNCs define who can afford patented drugs?

Shahani: In India, Novartis is faced with a globalization dilemma that characterizes many emerging economic powers today: two markets within one country. India has a booming middle class on one hand and a vast number of extremely poor people on the other. We are aware of the many obstacles that poor patients face regarding access to medical care. For that reason, we are pursuing a dual patient-focused strategy; we give poor patients free access to Glivec and we take the upper strata of India seriously as a formidable power with all rights and obligations brought with this status. Respect for intellectual property will strengthen, not weaken, the Indian economy, helping India reach its aspiration of becoming a pharmaceutical powerhouse.

To base the price of drugs on income levels is extremely difficult because reliable statistics on individual incomes are difficult to establish in India. In fact, only 3% of the population pays tax. The only way to optimize the system of differential pricing is to have an extremely reliable provider network. Government hospitals, NGOs and rural health centers would receive discounted drugs, while private clinics and hospitals would dispense drugs priced comparably to their U.S. counterparts. Despite a significantly higher cost for the private sector, an analysis of the cost structure shows that the amount spent on medicine is a fraction of that spent on diagnosis and doctors’ fees. Additionally, government hospitals need to pay special attention to avoid the leakage and export of cheaper drugs through illegal channels.

Shahani: No. There are in-built safeguards in international trade agreements that allow for export of medicines produced under compulsory licenses that are issued for public health reasons. These provisions have been put in place to safeguard access to medicines to poor countries that do not have sufficient local production capacity.

India Knowledge@Wharton: What is the government’s role in granting patients access to medicines? There was some criticism of the government’s priorities — its focus on the patent challenge instead of health infrastructure, diagnostics and access to basic needs.

Shahani: We need all stakeholders to come together to solve the complex problem of access where medicine prices and intellectual property are only two pieces of the puzzle. A range of underlying and related issues with respect to health infrastructure, inequitable or otherwise, are inefficient health systems, underfunding on health care, poverty, etc. Governments have a principal role to play in this, as do public-private partnerships. Tiered pricing, donation programs and corporate social responsibility activities can alleviate the problem to some extent, but they are not sustainable solutions.